If You Do Not Like Me, I Do ESG: Firms' response to the Negative Sentiment

This paper tests firms’ strategic response to negative consumer sentiment. We use sentiment analysis on social media posts to detect and proxy for negative consumer sentiments toward the firms and operationalize the number of ESG positive news about the firms as the strategic response to the sentiment. We document a surprising phenomenon that negative sentiment toward a firm is positively associated with future ESG news announcements by the firm. The effect is stronger for B2B firms than for B2C ones. We argue this is the firm’s strategic reaction rather than being a true change in the firm’s ESG policy, because (1) The ESG effect only lasts for a short period, and (2) the negative sentiment toward the firm decreases after the ESG news. Using former US president Trump’s tweets as external shocks, we show the causal relationship in a DID framework.